ATO Interpretative Decision

ATO ID 2003/471 (Withdrawn)

Income Tax

Capital Allowances: business related costs - to stop carrying on your business
FOI status: may be released

This ATO ID is withdrawn as former section 40-880 of the Income Tax Assessment Act 1997 has been repealed. New section 40-880 provides deductions for a greater range of business related costs where the expenditure is incurred after 30 June 2005. Expenditure incurred after that date is deducted under new subsection 40-880(2).
Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of expenditure incurred before 1 July 2005.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Status of this decision: Decision Withdrawn 9 June 2006

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

If an amount satisfies the requirements of both section 25-50 of the Income Tax Assessment Act 1997 (ITAA 1997) and paragraph 40-880(1)(g) of the ITAA 1997, is that part of the amount that is denied a deduction under section 25-50 by paragraph 26-55(1)(a) of the ITAA 1997 alternatively deductible under paragraph 40-880(1)(g)?

Decision

No. Paragraph 40-880(3)(g) of the ITAA 1997 also denies a deduction for the relevant part under paragraph 40-880(1)(g) of the ITAA 1997 because that part is specifically made non-deductible by paragraph 26-55(1)(a) of the ITAA 1997.

Facts

The taxpayer closed down their business during the 2003 income year. In connection with the closure, the taxpayer made a payment during that year that satisfied the requirements of both section 25-50 and paragraph 40-880(1)(g) of the ITAA 1997. The payment resulted in the taxpayer making a loss for income tax purposes for the 2003 income year.

Reasons for Decision

Section 25-50 of the ITAA 1997 allows an immediate deduction for certain payments of pension, gratuity or retiring allowance. However, paragraph 26-55(1)(a) of the ITAA 1997 limits the deduction to the extent it creates or increases a loss for income tax purposes. For the taxpayer, therefore, that part of the payment that created the tax loss is not deductible under section 25-50 of the ITAA 1997.

Section 40-880 of the ITAA 1997 allows certain capital expenditure to be deducted over 5 years. One of those expenditures is described in paragraph 40-880(1)(g) as costs incurred to stop carrying on your business. However, subsection 40-880(3) of the ITAA 1997 denies a deduction for certain expenditure that is otherwise deductible under one of the paragraphs in subsection 40-880(1) of the ITAA 1997. In particular, paragraph 40-880(3)(g) of the ITAA 1997 denies a deduction to the extent the expenditure is specifically made non-deductible under another provision of the Income Tax Assessment Act 1936 (ITAA 1936) or the ITAA 1997.

The effect of the limitation in paragraph 26-55(1)(a) of the ITAA 1997 is to make non-deductible that part of the amount otherwise deductible under section 25-50 of the ITAA 1997 that creates or increases a loss for income tax purposes. For the taxpayer, this means that the amount denied a deduction under section 25-50 clearly satisfies the exclusion in paragraph 40-880(3)(g) of the ITAA 1997 with the effect that a deduction for the amount so denied is not alternatively allowable under paragraph 40-880(1)(g) of the ITAA 1997.

The deduction made available by section 40-880 of the ITAA 1997 was not intended to alter the existing income tax treatment of expenditure that was already specifically recognised in the law even if that recognition was by way of making it non-deductible.

Date of decision: 3 June 2003

Year of income: Year ending 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   section 25-50
   paragraph 26-55(1)(a)
   section 40-880
   subsection 40-880(1)
   paragraph 40-880(1)(g)
   subsection 40-880(3)
   paragraph 40-880(3)(g)

Keywords
Blackhole expenditure
Business closure costs
Business related costs
Capital allowances

Business Line: Effective Life and Capital Allowances Centre of Expertise

Date of publication: 20 June 2003

ISSN: 1445-2782

history

	Date:	Version:
	3 June 2003	Original statement
You are here →	9 June 2006	Archived

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